JAB Unit Is Striking Coffee Partnership With Italy's Illy

(Bloomberg) -- A unit of JAB Holding Co., the investment vehicle of the billionaire Reimann family, is close to a partnership with Illycaffe SpA that will likely include producing single-serve coffee portions for the family-owned roaster, according to people familiar with the situation.

The tie-up could see Jacobs Douwe Egberts, a coffee roaster controlled by JAB, produce the aluminum capsules compatible with Nespresso machines for the Italian brand, said the people, who asked not to be identified because the information is private. The partnership is part of a broader cooperation between the companies that could be announced as soon as Monday, they said.

The partnership would intensify a struggle with Nestle SA, the world’s largest coffee company, and Starbucks Corp. for dominance of the global market. JAB has been expanding rapidly in recent years, spending more than $30 billion to acquire coffee brands like Keurig Green Mountain, Peet’s and Stumptown, driving consolidation in the market and prompting competitors to respond.

Full details of the alliance couldn’t be learned and may change ahead of an announcement. A JDE spokesman said the company doesn’t comment on rumors or speculation. Illy declined to comment. A representative for JAB couldn’t immediately be reached for comment.

Illy is holding a press conference Monday in Milan, according to an e-mailed invitation that didn’t provide details of the event.

The fierce competition for a share of the global coffee market has prompted Nestle to spend $7.15 billion earlier this year for the right to market Starbucks products from beans to capsules. That followed a $425 million purchase of a stake in Blue Bottle Coffee. Coca-Cola Co. in August agreed to buy U.K. chain Costa from Whitbread Plc. Luigi Lavazza SpA earlier this week snapped up the coffee business of Mars Inc., including the Flavia and Klix systems.

Illy, which is controlled by family descendants of founder Francesco Illy, rebuffed takeover approaches from suitors including JAB and Nestle some months ago, according to people familiar with the situation.

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